Honey Badger Silver Inc press release
Gabriel Resources Ltd. - Second Quarter Report
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TORONTO, July 28 /CNW/ -
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Highlights
Financial performance
Second quarter net loss was $3.4 million, or $0.02 per share. Year-to-date net loss was $5.1 million, or $0.03 per share. Second quarter monthly expenditures averaged $3.1 million per month, or $9.5 million in total during the second quarter and $18.1 million for the first 6 months. A total of $7.7 million spent on our two development projects during quarter, $14.4 million for the first 6 months.
Liquidity and capital resources
Working capital at June 30, 2006 totaled $34.8 million. Our base budget for 2006 totals $30 million, excluding expenditures included in our US$638 million project capital cost estimate. Project financing discussions are well underway with a goal of completing a final term sheet for both the senior and subordinated debt in the fourth quarter of 2006.
"With the submission of our Environmental Impact Assessment (EIA) and the public consultation hearings well underway, we are making our way through the approval process," said Alan R. Hill, President and Chief Executive Officer. "With the first week of meetings in the local area complete, we are very encouraged by the constructive nature of the meetings which will contribute to Rosia Montana setting the standards for mining on a global scale".
Rosia Montana Project Development
Environmental Impact Assessment
The EIA was completed by an independent team of specialists and submitted to the Romanian Government in early May 2006. The Government announced in early June the Romanian public consultation meetings schedule, with 14 meetings beginning July 24th and ending August 25th. The Company will participate in at least one Hungarian public meeting following the completion of the Romanian meetings in August, as required under the Espoo Convention. The Hungarian meetings are currently being finalized. The EIA and the public meeting schedule are available on our web site. Questions and comments received during the public consultation period, will be collected and reviewed by the Ministry of Environment and Waters Management. The Ministry then refers to the Company all questions and comments judged to require a response, which is published as an Annex to the EIA. The Romanian Government makes the final determination on EIA approval, which we expect in the fourth quarter of 2006. The Alba Iulia Court of Appeal dismissed in early July the application submitted by Alburnus Maior to suspend the assessment process for the EIA for the Rosia Montana project.
Archaeological Discharge Certificate
The Romanian Supreme Court (the "Supreme Court") has decided that the series of lower court decisions that resulted in the annulment of archaeological discharge certificate no. 4 ("Discharge Certificate") were not conducted properly, and therefore have overturned the previous annulment. The Supreme Court has referred the matter back to a different lower court, the Brasov Court of Appeal, to be retried on its merits. The retrial is scheduled for fall 2006. We already have the necessary discharge certificates for the area required to begin construction in the spring of 2007.
Acquisition of Surface Rights
Through July, a total of 55.5 percent of the homes in the affected area are now either owned or under option for acquisition by the Company. As of the date of this report, 96 percent of the property titles have been clarified, the balance is expected to be completed by yearend.
Community Support
On May 4th the local community held a march to demonstrate their support for the project - over 500 residents joined in the 12km march. In early July ProRosia NGO held a fund raising barbeque attracting over 600 people to raise funds to ensure the community voice is heard. In late July the Company held an open house and barbeque for the residents of Rosia Montana to unveil the new town and home designs attracting 2,000 people. Support for the community and project was also received from a group of Romanian NGO's in early July. A total of 18 NGO's in favour of the project issued a press release indicating: the project should proceed if it complies with all laws; Neither Alburnus Maior nor Pro Rosia Montana represent the interests of the local community; and that the area of Rosia Montana is socially, economically and environmentally disastrous and people do not have jobs and life is hard.
New Appointment
On May 10, 2006 Yani Roditis was appointed to the position of Chief Operating Officer. Mr. Roditis joined Gabriel as VP/Projects in June 2005. Also on May 10, 2006 Alan R. Thomas joined our Board. Mr. Thomas served as VP and CFO of ShawCor Ltd., an energy services firm until his retirement earlier this year.
Updated Rosia Montana Project Timeline
We maintain our target date to receive our construction permit in winter 2006-2007. We remain on schedule for first gold pour in spring of 2009.
MANAGEMENT'S DISCUSSION AND ANALYSIS >>
This Management Discussion and Analysis ("MD&A") provides a discussion and analysis of the financial conditions and results of operations to enable a reader to assess material changes in the financial condition and results of operations as at and for the three-and-six-month periods ended June 30, 2006 in comparison to the corresponding prior-year periods. The MD&A is intended to supplement the Company's unaudited consolidated financial statements and notes thereto ("Statements") for the three-and-six-month periods ended June 30, 2006 which are included in the quarterly report. You are encouraged to review the Statements in conjunction with this document. This MD&A should be read in conjunction with both the annual audited consolidated financial statements and the related MD&A, which includes a detailed description of risks for the two-year period ended December 31, 2005.
All amounts included in the MD&A are in Canadian dollars, unless specified. Readers are encouraged to read our Forward-Looking Statement, which is included at the end of this report in conjunction with the MD&A. This report is dated as at July 28, 2006 and the Company's public filings, including its most recent Annual Information Form dated March 27, 2006 can be reviewed via the SEDAR website (www.sedar.com)
About Gabriel
Gabriel is a Canadian based resource company committed to responsible mining and sustainable development in the communities in which it operates. Gabriel is currently engaged in the exploration and development of mineral properties in Romania and is presently engaged in the development of its 80% owned Rosia Montana gold project. Our vision is to create value for all of our stakeholders from responsible mining. Our mission is to build Rosia Montana and, as a result, to be a catalyst in Romania for sustainable economic, environmental, cultural and community development. As we develop the world-class Rosia Montana project, we will strive to set high standards through good governance, open and transparent communications, and operations and reclamation based on Best Available Techniques -- all in the service of sustainable development. Whether the issue is corporate governance, community development, environmental responsibility or operational practices, we pledge to do it right.
Key issues
Environmental/permitting
The Environmental Impact Assessment ("EIA") was submitted, in both Romanian and English to meet the requirements of the Romanian Government and the international Espoo Convention, in early May 2006. In addition, while it is not a legal requirement, the Company has elected to have the Non-Technical Summary translated into Hungarian to assist affected parties in Hungary to better participate in the public consultation process. The Government announced in early June the Romanian public consultation meeting schedule, with 14 meetings to be held from July 24, 2006 to August 25, 2006. Following the meetings in Romania, the Company will participate in at least one meeting in Hungary as required under the Espoo Convention. The Company is in the process of finalizing the Hungarian meetings. The EIA and the public meeting schedule are available on our web site. On July 11, 2006 the Alba Iulia Court of Appeal dismissed the application of the foreign funded Alburnus Maior to suspend the assessment process for the EIA for the project. Alburnus Maior initiated its actions against the Romanian Ministry of Environment and not Gabriel. With the Court's decision, the public consultation process began as scheduled on July 24, 2006. The questions and comments received during the public consultation period, will be collected and reviewed by the Ministry of the Environment and Waters Management. The Ministry then refers to the Company all questions or comments judged to require a response, which is published as an Annex to the EIA. The Romanian Government makes the final determination on EIA approval which we expect in the fourth quarter 2006.
Surface Rights
During the second quarter, the focus of management was on the community. Alan Hill, the Company's President and Chief Executive Officer met with about half of the members of the local community to better understand their individual situations. As of the date of this report, the Company owns outright or has options to purchase 55.5% of the residential properties located under the footprint of the project. In the past, one of the key steps affecting surface rights acquisition has been property title clarification within the footprint of the project. As of the date of this report, 96% of the titles to properties have been clarified and the balance is expected to be completed by yearend. Through July, 129 residential property owners signed the options agreement, a program which began in January 2006. This program introduces a mechanism for the residents of the village of Rosia Montana to enter into option agreements with respect to the acquisition of their properties, thereby allowing us to continue the process of securing rights to the surface area required to develop the Rosia Montana project with fair and equitable prices ensured to property sellers, but without the significant cost outlay of an outright purchase. This program was put together in accordance with World Bank/IFC guidelines. The option program allows us to expedite the acquisition of properties once we begin purchasing properties again. There are a total of 433 homes, which the Company does not own or are not covered by any form of agreement in the three separate zones of the project. The three zones include the industrial zone, protected area and buffer zone of the project. While the Company only needs 379 of the remaining homes, which are located in the industrial zone needed to build the project, an offer to purchase homes in the protected area and buffer zone was made to those residents at their request. The focus of management's attention is to acquire the homes in the industrial zone, particularly those homes required for construction. As has happened in other areas, it is expected that some NGO's will try to obstruct efforts to obtain surface rights. However, since not all the homes in the industrial zone are necessary to start construction, this issue will be managed in the context of the phases of mining. In addition to the private properties required, the Company needs to acquire about 35% of the project area owned by institutions including the local administrations of Rosia Montana and Abrud, as well as certain churches and local mining companies. The process to acquire the institutional properties is well underway and we expect to have acquired or receive concession rights to those properties before the end of the year.
Community Support
Support for the project in the Rosia Montana community is gaining momentum. On May 4, 2006, over 500 residents of the village held a 12-km march from Rosia Montana's village square to the town of Abrud. At the completion of the march, the groups - including the ProRosia community NGO and the two major mine unions - issued a statement calling on government encouragement for private economic development, underlining the need for jobs and the region's long history of mining. In early July ProRosia hosted a fund raising barbeque which attracted over 600 people. In addition, the Company held an open house and barbeque for the residents of Rosia Montana at the new town site on July 20, where 2,000 people gathered for the unveiling of the new town and home designs. Support for the community and the project was also received from a group of Romanian NGO's in early July 2006. A total of 21 NGO's visited Rosia Montana in early July 2006 and 18 NGO's issued a press release, two NGO's being neutral on the project and one NGO being against the project. The main conclusions of the 18 NGO's are that:
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Archaeology
An archaeological review of historic mining activity at Rosia Montana is a critical step in the granting of the construction permit to build the project. An archaeological discharge is required for all of the area under the footprint of the proposed mine. The area has been mined for at least two thousand years and now provides many traces of the earlier activity. Over the past five years we have been given several discharge permits to acknowledge completion of the program. On July 11, we -- along with the Minister of Culture and Religious Affairs -- won our appeal when the Romanian Supreme Court (the "Court") decided that the series of lower court decisions that resulted in the annulment of our archaeological discharge certificate no. 4 (the "Discharge Certificate") was not conducted properly, and as a result, overturned the previous annulment. The Supreme Court has referred the matter back to a different lower court, the Brasov Court of Appeal, to be retried on its merits. We expect the retrial to be scheduled for the fall of this year. The retrial should not delay the commencement of construction of the Rosia Montana project as the Discharge Certificate relates to an area not required for construction start up. We have all discharge certificates to begin construction next spring.
Financing
At June 30, 2006, we have $34.8 million in working capital. Our rate of expenditure was approximately $9.5 million for the quarter, or $3.2 million per month, excluding working capital adjustments. This rate is higher than the second quarter of 2005 when we spent $5.4 million for the quarter or an average of $1.8 million per month, largely due to increased corporate activity related to the progress of the project, higher communications costs and completion of the project design and the EIA. The expenditure rate is expected to decline to approximately $2.5 million per month over the next two quarters with the submittal of the EIA but may rise as we acquire properties, begin detailed engineering and ordering long-lead-time equipment and begin construction of the new village at Piatra Alba. Project financing discussions are well underway with the goal of completing a final term sheet for both senior and subordinated debt in the fourth quarter of 2006 to coincide with the expected timing of EIA approval. It is not uncommon for financial institutions to require some form of hedging in association with the provision of project debt finance. The cost to construct the project is estimated at US$638 million based on a definitive feasibility study updated in early 2006 and released concurrent with our year end 2005 results. The estimated total cash cost to produce gold over the first five years is expected to average US$181 per ounce and average US$237 per ounce over the life of the project. The increase in both capital and operating costs over the previous estimates from early 2003 reflects in part significant cost pressures due to strengthening of currencies, higher raw material costs, higher steel and fuel costs as well as higher wages. While the updated cost estimate to build and operate the project contains contingencies, if these trends continue, these contingencies may not be sufficient to absorb the higher costs. Gabriel currently anticipates that it will need to raise between US$700 and US$750 million to place the Rosia Montana project into production. On the positive side, gold prices are at their highest level in 25 years, which overall have increased the return and the profitability of the Rosia Montana project. The estimated internal rate of return of the project based on US$500 gold is 18% and the estimated return increases to 26% at US$600 gold. Also impacting the increase in capital was the fact that there have been certain changes to the project to improve the design, to reduce community impact and ensure compliance with changes in regulations. The project has been designed to meet the highest environmental, social and sustainable development standards.
New Appointment
On May 10, 2006 the Board of Directors appointed Yani Roditis, VP/Projects, to the position of Chief Operating Officer. The appointment was effective immediately and Mr. Roditis will continue to reside in Romania. Mr. Roditis joined Gabriel in June 2005. Prior to joining the Company, he spent 11 years with a senior gold mining company, where he gained extensive engineering, environmental permitting and mine development experience through a number of positions at operating mines and development projects in the United States, Peru, Chile and Argentina. Also on May 10, 2006 Alan R. Thomas joined the Board of Directors of the Company. Mr. Thomas served as Vice President and Chief Financial Officer of ShawCor Ltd., an energy services firm headquartered in Toronto with manufacturing and service operations around the world, until his retirement earlier this year. Prior to serving with ShawCor, Mr. Thomas was CFO of Noranda and brings extensive financing experience in mining and other capital intensive industries. As a chartered accountant and graduate of the University of Toronto, Mr. Thomas brings to the Company extensive experience in dealing with controlled and Public Company Boards of Directors, both as a director and as an officer.
Updated Project Timeline
The EIA was submitted in the second quarter of 2006, putting us on track for approval in the fourth quarter of this year. The second key step is archaeological clearance, we already have the necessary discharge certificates for the area required to begin construction in the spring of 2007 but the discharge for Cirnic open pit, one of the two open pits required for the first eight years of operations is under suspension until retrial later this year. We won our appeal in early July overturning a lower court decision to annul the Cirnic discharge certificate and the retrial will begin this fall. We would hope to have the discharge upheld before we begin construction next spring but it is not mandatory. Once we acquire the balance of properties in the village not already owned, we will have the surface rights, which is the third key step in the permitting process. Our target date to receive our construction permit is winter 2006-2007. We estimate that it will take approximately two years to construct the mine, putting first pour of gold in the spring of 2009.
Results of Operations
The results of operations expressed in Canadian dollars are summarized in the following tables, which have been prepared in accordance with Canadian Generally Accepted Accounting Principles:
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Statement of Loss
Loss for the period
For the quarter ended June 30, 2006, we lost $3.4 million, or $0.02 per share, compared to a loss of $2.3 million, or $0.01 per share, in the year-earlier second quarter. For the six-month period ended June 30, 2006 we lost $5.1 million, or $0.03 per share, compared to $4.7 million, or $0.03 per share, in the year earlier period. Higher corporate, general and administrative expenses and project financing costs partially offset lower costs related to stock option compensation, severance costs and higher interest income due to higher cash balances during 2006 compared to 2005. We will continue to incur losses until commercial production commences and revenues are generated.